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15 Jul Fin10

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Consider the following four investments. a) You invest $3,000 annually in a mutual fund that earns 10 percent annu- ally, and you reinvest all distributions. How much will you have in the account at the end of 20 years? b) You invest $3,000 annually in a mutual fund with a 5 percent load fee so that only $2,850 is actually invested in the fund. The fund earns 10 percent annually, and you reinvest all distributions. How much will you have in the account at the end of 20 years? (Assume that all distributions are not subject to the load fee.) c) You invest $3,000 annually in a no-load mutual fund that charges 12b-1 fees of 1 percent. The fund earns 10 percent annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years? d) You invest $3,000 annually in no-load mutual fund that has a 5 percent exit fee. The fund earns 10 percent annually before fees, and you reinvest all distributions. How much will you have in the account at the end of 20 years?

 

 

The portfolio manager of a hedge fund believes that stock A is undervalued and stock B is overvalued. Currently their prices are $30 and $30, respectively. The port- folio manager of the fund buys 100 shares of A and sells 100 shares of B short. a) Why does the portfolio manager establish these two positions? b) What is the initial cash outflow from the two positions? c) What are the net profits and losses on the positions if, after a period of time, the prices of each stock are
Price of A           Price of B
$25                     $25
27.50                    27.50
30                          30
32.50                     32.50
35                           35
d) What are the net profits and losses if, after a period of time, the prices are
Price of A                Price of B
$30                           $30
32.50                        27.50
35                               25
37.50                          22.50
40                               20
e) What are the net profits and losses if, after a period of time, the prices are
Price of A                   Price of B
$30                              $30
27.50                           32.50
25                                 35
22.50                           37.50
20                                 40

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